State Street Corporation
) reported its fourth-quarter 2012 operating earnings of $1.11
per share, substantially beating the Zacks Consensus Estimate of
$1.00. This also compares favorably with the last-quarter
earnings of 99 cents.
After considering certain non-recurring items - provisions for
litigation exposure and other costs, charitable contribution,
acquisition costs, restructuring charges, benefit related to
claims associated with Lehman bankruptcy , effect on income tax
rate of non-operating adjustments, discount accretion related to
former conduit securities, tax effect of audit settlement
associated with a 2010 acquisition and discrete tax benefit
related to former conduit securities - net income came in
at $468 million or $1.00 per share. This compares unfavorably
with the prior-quarter net income of $654 million or $1.36 per
Better-than-expected results benefited from improvement in the
top line, partly offset by higher operating expenses. Although
asset position remained robust, capital ratios showed mixed
State Street's net income available to shareholders was $521.0
million on an operating basis, up 10.0% from $473 million in the
prior quarter. For 2012, net income stood at $1.89 billion,
climbing 2.5% from $1.85 billion in 2011.
For full-year 2012, operating earnings came in at $3.95 per
share, surpassing the Zacks Consensus Estimate of $3.84 and
earnings of $3.73 in the previous year.
Behind the Headline
Revenue on an operating basis came in at $2.46 billion, improving
3.2% from $2.39 billion in the prior quarter. Operating revenue
was marginally ahead of the Zacks Consensus Estimate of $2.37
Operating revenue for 2012 was $9.73 billion, up 1.7% from $9.56
billion in the previous year. Full year revenues were 2.0% ahead
of the Zacks Consensus Estimate of $9.54 billion.
Net interest revenue on an operating basis deteriorated 1.8% from
previous quarter to $600 million. Net interest margin was 1.36%
in the quarter, down 8 basis points from the prior quarter.
Fee revenue came in at $1.81 million, jumping 5.1% from $1.72
billion in the previous quarter. The rise was attributable to
increases in services fees, trading services fees, management
fees, securities finance fees as well as processing and other
On an operating basis, non-interest expenses were $1.71 billion,
rising 3.0% from the prior quarter. The increase was primarily
driven by higher information systems and communication expenses,
transaction processing service costs, occupancy expenses as well
as other expenses.
Total assets under custody and administration were $24.37
trillion as of Dec 31, 2012, up nearly 4% sequentially and 11.8%
on a year-over-year basis. Moreover, State Street's total assets
under management stood at $2.09 billion, up 1.2% from the last
quarter and 13.2% from the prior-year quarter.
Capital and Profitability Ratios
State Street's capital ratios displayed mixed movements. As of
Dec 31, 2012, Tier 1 capital ratio was 19.1%, down from 19.8% as
of Sep 30, 2012 but up from 18.8% as of Dec 31, 2011. Likewise,
Tier 1 common to risk-weighted assets decreased to 17.1% as of
Dec 31, 2012 from 17.8% as of Sep 30, 2012 but increased from
16.8% as of Dec 31, 2011.
Further, the estimated Basel III Tier 1 common ratio fell to
10.8% as of Dec 31, 2012 from 11.3% as of Sep 30, 2012. Return on
common equity (on an operating basis) came in at 10.3%,
increasing from 9.6% in the last quarter and 9.5% from year-ago
In March, after receiving the approval for its capital plan, the
company announced a new share repurchase program authorizing the
purchase of up to $1.8 billion of stock through the first quarter
of 2013. During the reported quarter, State Street bought back
10.9 million shares at an aggregate cost of $480 million. For
2012, the company bought back nearly 33.4 million shares worth
over $1.4 billion.
The company has $360 million remaining under its stock repurchase
authorization, effective through March 2013.
One of State Street's peers,
The Bank of New York Mellon Corporation'
) fourth-quarter 2012 earnings of 53 cents per share were in line
with the Zacks Consensus Estimate. However, this compares
unfavorably with the prior quarter earnings of 61 cents.
Lower top line and higher operating expenses adversely impacted
the results of the quarter. However, asset quality continued to
show improvement and capital ratios remained healthy. Further,
BNY Mellon's asset position improved.
We anticipate State Street's restructuring programs along with
stable core servicing and investment management franchises to
help offset its financial weakness. Further, the recent
acquisitions will further augment the revenue.
The low interest rate environment and deteriorating net interest
revenue are expected to dent State Street's top line in the
upcoming quarters. Despite these concerns, sound capital
deployment activities will boost investors' confidence in the
State Street currently retains a Zacks Rank #3 (Hold). We also
maintain a long-term Neutral recommendation on the stock.
BANK OF NY MELL (BK): Free Stock Analysis
STATE ST CORP (STT): Free Stock Analysis
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